Talent management continues to be a priority for private equity firms

Private equity remains a people-first business as firms view hiring and onboarding as key priorities. 

Private equity firms have made significant investments over the past 5 to 10 years, upgrading technology and improving back-office processes to create a scalable operating model to support their growth objectives. At the same time, the industry remains a people-first business and firms continue viewing hiring and onboarding talent as one of their key priorities.

In the EY 2022 Global Private Equity survey, 77% of the largest firms (those with assets over $15 billion) considered hiring and onboarding talent to be one of their top three talent management priorities. Moreover, among midsized and smaller firms, more than 8 of 10 ranked hiring as one of their top priorities.

There’s good reason for this. Private investors are paying closer attention to the hiring practices of private equity firms. Some 43% surveyed said they have increased their scrutiny of talent management programs during due diligence, with 30% saying they were confident that a better talent management program signals a firm’s ability to retain and attract top talent. 

Diversity

To diversify their talent base, many firms are also looking to increase representation of racially and ethnically diverse groups. To that end, for the second consecutive year, many listed diversity, equity and inclusion (DEI) as one of their top three talent management priorities. This move is reflected in our survey. Over the last several years, we have seen an increase in fund managers hiring women for positions in both the front and back offices, and this year was no different.

In this year’s survey, the ratio of firms with more than 30% of women in the front office increased from 12% in 2020 to 23% only two years later. Nearly half of all firms reported that women accounted for 11% to 30% of their front-office workforce. In the back office, the ratio of women continued to far surpass their representation in the front office.

Fund managers also continued hiring more people with racially and ethnically diverse backgrounds in both the front and back offices. Approximately one in five private equity fund managers increased the proportion of these groups in front-office positions to greater than 10%, and one in six private equity managers increased the proportion in back-office positions to greater than 10%.

Among firms with more than $15 billion in assets, only 8% reported that people with racially and ethnically diverse backgrounds accounted for more than 30% of their front-office employees, while a further 29% of the largest firms said they accounted for 11% to 30%. People with diverse backgrounds make up only a slightly higher percentage of the back-office workforce. However, there has been clear improvement on this front when it comes to adding people with diverse backgrounds over the results from the prior year’s survey in both the front and back offices.

While we have seen measured progress in gender and ethnic representation in the private equity industry between our 2021 survey and our current one, fund managers need to remain vigilant in their efforts to further increase the diversity of their front and back offices. Managers who don’t take a proactive approach may soon find themselves considered industry laggards, with a significant proportion of investors asking them why — and potentially taking their capital elsewhere.

Talent management will continue to play an important role for private equity firms as they seek to create long-term value for their organizations. To that end, firms that provide an operating environment conducive to attracting and retaining talent will be the ones to emerge as most likely to compete for private equity investors in the future.